GST benefit | How to claim Input Tax Credit: eligibility, conditions, exclusions
Input tax credit (ITC) is an essential element of GST which allows recovering tax paid on business expenses incurred in producing goods or rendering services. If the GST did not include Input Tax Credit it would result in a tax on tax, defeating the whole purpose of GST regime. Using ITC, GST paid on business expenses such as marketing expenses, telephone charges, office rent etc can be set off against the GST charged to the customers.
For example, Simran who runs a marketing agency charged her clients Rs. 1,00,000 + GST@ 18% i.e. Rs. 18,000 for a particular period. During the same period, she paid office rent of Rs. 60,000 + GST @ 18%. i.e. Rs. 10,800. Simran has charged a GST of Rs. 18,000 but since she will claim ITC of Rs. 10,800, she will only deposit the balance i.e. Rs. 7,200 with the government.
Eligibility for claiming ITC
Every person registered under GST is entitled to claim ITC for goods or services used in the course of running the business. Therefore, GST incurred on personal expenses cannot be claimed as a credit.
Conditions for claiming credit
Credit can be claimed only if the following conditions are met:
- You are in possession of a tax invoice or debit note issued by a registered supplier
- You have received the goods or services or both
- You have furnished the GST return
- Tax charged in respect of such supply has been actually paid by the supplier
- You shall not be entitled to take ITC in respect of a particular invoice after the due date of furnishing of the GST for the month of September following the end of financial year to which such invoice pertains or furnishing of the relevant annual return, whichever is earlier.
Crediting the credit
GST is levied on inter-state and Intra-state transactions and therefore is categorized into Central GST (CGST), State GST (SGST), Union GST (UGST) and Integrated GST (IGST). The amount of input tax credit available in your electronic credit ledger is utilized as tabulated below:
- The credit under IGST: Utilised under IGST; Balance utilized under — 1st CGST, then SGST/UGST
- The credit under CGST: Utilised under CGST; Balance utilized under IGST
- The credit under SGST/UGST: Utilised under SGST/UGST; Balance utilized under IGST
The input tax credit shall not be available in respect of the following goods/services
- Motor vehicles and other conveyances except when they are used for the further supply of such vehicles, transportation of passengers/ goods or imparting training on driving, flying, navigating such vehicles.
- Food and beverages, outdoor catering, beauty treatment, health services, cosmetic and plastic surgery except where an inward supply of goods or services or both of a particular category is used by a registered person for making an outward taxable supply of the same category of goods or services or both or as an element of a taxable composite or mixed supply.
- Rent-a-cab, life insurance and health insurance except where such services are obligatory for an employer to provide to its employees under any law for the time being in force or where such inward supply of goods or services or both of a particular category is used by a registered person for making an outward taxable supply of the same category of goods or services or both or as part of a taxable composite or mixed supply.
- Membership of a club, health and fitness center
- Travel benefits extended to employees on vacation such as leave or home travel concession
- Goods or services or both
- on which tax has been paid under composition levy
- received by a non-resident taxable person except on goods imported by him
- used for personal consumption
- Goods lost, stolen, destroyed, written off or disposed of by way of gift or free samples
- Any tax paid in accordance with the provisions of
- Section 74 (tax not paid/short paid by reason of fraud etc.
- Section 129 (Detention, Seizure, and release of goods and conveyances in transit); and
- Section 130. (Confiscation of goods or conveyances and levy penalty
- Works contract services when supplied for construction of an immovable property (other than plant and machinery) except where it is an input service for the further supply of works contract service
- Goods or services or both received by a taxable person for construction of an immovable property (other than plant or machinery) on his own account including when such goods or services or both are used in the course or furtherance of business.